Are Charged Off Debts Uncollectible Debts?

Based upon The Kelsey Law Firms’ day to day interactions with clients and the collection process, It is clear that there is a complete misunderstanding of what a “Charged Off” debt is. I have heard over and over again, the thought that a charged off debt means that the debt is no longer collectible. Wrong!

A debt is charged off when the original creditor has decided to no longer attempt to collect on the debt and decides to “charge it off”. This action gets the debt off of that creditors accounting books and may also provide them with a tax write off, due to the loss (lack of payment). However, the debt may not just disappear from your radar screen and, in fact, depending upon the time period, remains the payment obligation of the person(s) who created and/or later joined in on the debt.

Following the charge off, by the original creditor, often times, another creditor will purchase the debt, for a fraction of it’s original balance, and then continue the collection process (trying to collect the full remaining balance from you), while keeping the profits for themselves. Keep in mind that generally and pursuant to Maryland Courts and Judicial Proceedings §5-101 and 102, debts are collectible for a period of three (3) years, and if the debt was incurred “under seal”, then possibly up to twelve (12)! So, if the debt is older than this time period, it is possibly uncollectible.

However, many creditors will attempt to collect the debt, even if they know it’s beyond the time period for filing a suit. So be careful to not acknowledge or agree, verbally or in writing, that you owe the debt, at any time, since each such acknowledgement starts the time clock ticking all over again. Example: you have a debt that is more than three years old and now uncollectible. The creditor calls and you state that you know that you owe the debt and/or agree to a repayment plan. Based off of that brief conversation, which was probably recorded, you have just revived the debt and worse off, have given the creditor, at least three (3) more years to collect it!

Another point of interest regarding charged off debts: While you may no longer be responsible for paying the debt, it will remain on your credit report, until the credit reporting period expires, since it is a part of your credit history. a time frame of seven (7) to ten (10) years.

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